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Africa Market and Lombard Fund News

Monthly Report Oct 2017

29 Nov 2017

Dear Investors

After a fantastic start to the month, volatility took hold and the fund went through some rocky waters.  However, as is the nature of African investments, we continue to believe that synchronised global growth led by the US, will continue to drive commodities and the Africa growth story.  In the meantime, hold on tight as December is historically a time of above average volatility.

In South Africa, Indicators of current business conditions in the country remain severely depressed, reflecting weak economic growth as well as very low levels of business and consumer confidence. This is further exaggerated by downgrades to SA and banking debt levels to sub-investment grade by S&P.  Looking ahead into Q1 next year, we do not expect to see a major improvement in business conditions.

The fund expects that through the ANC elective conference in mid-December, that volatility will increase.  While most investors are looking to the outcome of the conference to determine future fiscal policy direction, we are not optimistic that a result will automatically lead to changes.  As result we have been cautious to invest in SA domestic plays preferring the earnings diversity of global players that are able to leverage off the skill base only found in SA.  For now, we do not expect to increase any exposure in SA and will instead focus our attention on other regions showing promise.

While global investors are aware of the changes to the government of Zimbabwe through a coup earlier in the month, we think it is prudent to mention our views on the current situation.  Given current Zimbabwe fiscal policy, we have not held any positions in the country.  While on the surface the change is perceived as good, we suggest waiting for actual change to materialize.  Please note that the same party and cabinet are still in power with only a change in it leader taking place.

In Nigeria, the continued rebound in the oil sector activity has begun to support a strong recovery in GDP as well as supporting an uplift in non-oil related GDP.  We believe that this growth will continue in 2018 and as a result the fund continue to focus on Nigerian oil and consumer driven equity investments.

Even though there has been small economic improvement in Ghana, the below-potential non-oil GDP growth is still a significant problem.  Further, we have seen additional bank tightening to the private sector which we argue reflects that the economic rebound is not as robust as some investors suggest.   For now, we are limit our investments in Ghana until we see evidence of an improved fiscal situation.

Looking forward to our next communication.

Derek Seely

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